Test bank for foundations of financial management 10th canadian edition by block

Page of 18 This chapter has 106 questions Scroll down to see and select individual questions or narrow the list using the checkboxes below questions at random and keep in order  Multiple Choice Questions - (49) Topic: 01-02 Evolution of Finance as a Discipline - (10) True/False Questions - (45) Topic: 01-03 Goals of Financial Management - (3) Short Answer Questions - (12) Topic: 01-04 Maximizing Shareholder Wealth - (16) Odd Numbered - (53) Topic: 01-05 Measuring the Goal - (5) Even Numbered - (53) Topic: 01-06 Market Share Price - (3) Accessibility: Keyboard Navigation - (94) Topic: 01-07 Management and Shareholder Wealth - (7) Difficulty: Easy - (54) Topic: 01-08 Social Responsibility - (2) Difficulty: Hard - (6) Topic: 01-09 Ethical Behaviour - (7) Difficulty: Medium - (46) Topic: 01-10 Functions of Financial Management - (4) Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics - (12) Topic: 01-11 Forms of Organization - (20) Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk - (3) Topic: 01-12 The Role of the Financial Markets - (5) Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price - (24) Topic: 01-13 Structure and Functions of the Financial Markets - (1) Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests - (20) Topic: 01-14 Allocation of Capital - (9) Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds - (26) Topic: 01-15 Risk - (12) Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields - (21) Topic: 01-01 The Field of Finance - (2) Type: Concept - (47) Type: Memory - (59) What is the primary goal of financial management? Increased earnings Maximizing cash flow → Maximizing shareholder wealth Minimizing risk of the firm Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Memory Proper risk-return management means that: the firm should take as few risks as possible consistent with the objectives of the firm, an appropriate trade-off between risk and return should be → determined the firm should earn the highest return possible the firm should value future profits more highly than current profits Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-05 Measuring the Goal Multiple Choice Question Type: Memory Which of the following is not a major area of concern and emphasis in modern financial management and in this text? Inflation and its effect on profits → Stable short-term interest rates Changing international environment Increased reliance on debt Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk Topic: 01-03 Goals of Financial Management Multiple Choice Question Type: Concept Which of the following is not a major area of concern and emphasis in modern financial management and in this text? Marginal analysis Risk-return trade-off → Commodity trading Changing financial institutions Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk Topic: 01-03 Goals of Financial Management Multiple Choice Question Type: Concept The effect of the high rates of inflation experienced during the 1970s and early 1980s was to make: the gold standard was eliminated purchasing power increased Full file at https://TestbankDirect.eu/ Page of 18 → interest rates fell capital budgeting decisions less reliable Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept In the past, the study of finance has included: operational efficiency employee relationships legal cases → mergers and acquisitions Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline Multiple Choice Question Type: Concept A financial manager's goal of maximizing current or short-term earnings may not be appropriate because: it considers the timing of the benefits increased earnings may be accompanied by acceptably higher levels of risk share ownership is widely dispersed → earnings are subjective; they can be defined in various ways such as accounting or economic earnings Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Concept One of the major disadvantages of a sole proprietorship is: → that there is unlimited liability to the owner the simplicity of decision making low organizational costs low operating costs Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Multiple Choice Question Type: Memory The partnership form of organization: → avoids the double taxation of earnings and dividends found in the corporate form of organization usually provides limited liability to the partners has unlimited life simplifies decision making Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Type: Memory Multiple Choice Question 10 A corporation is not: owned by shareholders who enjoy the privilege of limited liability easily divisible between owners a separate legal entity with perpetual life → a separate legal entity with limited life Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Type: Memory Multiple Choice Question 11 Inflation: → increases corporations' reliance on debt for capital expansion needs creates larger asset values on the firm's historical balance sheet makes it cheaper (in terms of interest costs) for firms to borrow money Full file at https://TestbankDirect.eu/ Page of 18 creates stability for investors Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 12 Which of the following securities is not included as part of the capital market? Common stock → Commercial paper Government bonds Preferred stock Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-13 Structure and Functions of the Financial Markets Multiple Choice Question Type: Memory 13 Maximization of shareholder wealth is a concept in which: increased earnings is of primary importance profits are maximized on a quarterly basis virtually all earnings are paid as dividends to common shareholders → optimally increasing the long-term value of the firm is emphasized Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth Multiple Choice Question Type: Concept 14 The largest Canadian corporations are mainly: → widely held family controlled U.S controlled Japanese controlled Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Multiple Choice Question Type: Memory 15 Which of the following is not a true statement about the goal of maximizing shareholder wealth? It takes into account the timing of cash-flows → It is a short-run point of view which takes risk into account It considers risk as a factor It is a long-run point of view which takes risk into account Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth Multiple Choice Question Type: Concept 16 Increased international competition can be seen as a motivator to emphasize: asset diversification strategies the risk side of the risk-return relationship → the return side of the risk-return relationship invest in a new risky project Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Memory 17 Corporations can reduce portfolio risk by: narrowing their focus on one successful product → merging with companies in unrelated industries repurchasing their own stock selling their own stock Full file at https://TestbankDirect.eu/ Page of 18 Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital Multiple Choice Question Type: Concept 18 The shift to the return side of the risk-return relationship has occurred because: narrow focus on production stock splits there has been a decrease in the use of advanced technology in the production process → there has been an increase in international competition Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 19 A corporate buy-back, or the repurchasing of shares, is: → an example of balance sheet restructuring an excellent source of profits when the firm's stock is over-priced a method of reducing the debt-to-equity ratio shown as revenue on the income statement Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Accessibility: Keyboard Navigation Difficulty: Medium Objective: 01-04 Debate alternative goals of the firm on the basis of social or management Full fileLearning at https://TestbankDirect.eu/ interests Topic: 01-07 Management and Shareholder Wealth Multiple Choice Question Type: Concept 20 Which of the following is (are) a result of high inflation? Loss from disposal of assets Over-valued liabilities Lower stock price → Under-valued assets Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 21 A corporate restructuring can result in: increased revenue buying of low-profit margin divisions selling of high-profit margin divisions → reductions in the work force Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Memory 22 Which of the following is not an example of restructuring as discussed in the text? Repurchase of common stock → Creating a new organizational chart Merging with companies in related industries Divesting of an unprofitable division Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Concept 23 Agency theory deals with the issue of: when to hire an agent to represent the firm in negotiations the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone the limitations placed on an employee acting as the firm's agent to obligate or bind the firm → the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers Full file at https://TestbankDirect.eu/ Page of 18 Multiple Choice Question Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Type: Concept 24 As mergers, acquisitions, and restructurings have increased in importance, agency theory has become more important in assessing whether: a stock repurchase should be undertaken → shareholder goals are truly being achieved by managers in the long run managers are actually agents or only employees of the firm managers and owners are actually the same people with the same interests Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Concept 25 Insider trading occurs when: → someone has information not available to the public, which they use to profit from trading in stocks corporate officers buy stock in their company lawyers, investment dealers, and others buy common stock in companies represented by their firms stock transactions occur with reduced brokerage fees Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Accessibility: Keyboard Navigation Difficulty: Medium Objective: 01-04 Debate alternative goals of the firm on the basis of social or management Full fileLearning at https://TestbankDirect.eu/ interests Topic: 01-09 Ethical Behaviour Multiple Choice Question Type: Memory 26 The major difficulty in most insider-trading cases has been: that lenient judges have simply released the guilty individuals that insider trading, even though illegal, actually serves a beneficial economic and financial purpose → that inside trades have not been legally well defined inside trades actually have a beneficial effect on the wealth of all shareholders Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-09 Ethical Behaviour Multiple Choice Question Type: Concept 27 The 1990 Nobel Prize in economics was given to three finance professors They are: → Harry Markowitz, Merton Miller, William Sharpe Harry Markowitz, Franco Modigilani, Paul Samuelson Merton Miller, Franco Modigliani, Robert Merton William Sharpe, Richard Roll, Steve Ross Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-05 Measuring the Goal Multiple Choice Question Type: Memory 28 Future financial managers will need to understand: employment standards production engineering actuarial calculations → international currency hedging strategies Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 29 Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their contributions to the: options pricing model theories of working capital management → theories of risk-return and portfolio theory theories of international capital budgeting Full file at https://TestbankDirect.eu/ Page of 18 Multiple Choice Question Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-05 Measuring the Goal Type: Memory 30 In the 1930s, financial practices didn't focus on: maintenance of liquidity reorganization of financially distressed companies the bankruptcy process → international exchange costs Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline Multiple Choice Question Type: Memory 31 The increasing percentage ownership of public corporations by institutional investors has: had no effect on corporate management created higher returns for the stock market in general → created more pressure on public companies to manage their firms more efficiently taken away the voice of the individual investor Accessibility: Keyboard Navigation Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Full file at https://TestbankDirect.eu/ Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Concept 32 Money markets would include which of the following securities? Common stock and corporate bonds → Treasury bills and commercial paper Certificates of deposit and preferred stock Government bonds Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-12 The Role of the Financial Markets Multiple Choice Question Type: Memory 33 When a corporation uses the financial markets to raise new funds, the sale of securities is made in the: → primary market secondary market on-line market third market Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital Multiple Choice Question Type: Memory 34 Companies that have higher risk than a competitor in the same industry will generally have: to pay a lower interest rate than its competitors a higher relative stock price than its competitors a lower cost of funds than its competitors → to pay a higher interest rate than its competitors Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 35 The financial markets allocate capital to corporations by: → reflecting expectations of the market participants in the corporation's share price requiring higher returns from companies with lower risk than their competitors rewarding companies with expected high returns with lower relative stock prices relying on the opinion of investment dealers Multiple Choice Question Full file at https://TestbankDirect.eu/ Page of 18 Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital Type: Concept 36 Corporate restructuring has been one result of more institutional ownership Restructuring can cause: stability in the asset and liabilities of the firm the purchase of low-profit margin divisions the promotion of current management and/or large increases in the workforce → changes in the asset and liabilities of the firm Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-10 Functions of Financial Management Multiple Choice Question Type: Memory 37 Corporate restructuring in the late 1990s more often took the form of: leveraged buyouts → mergers to refocus on core businesses a change in capital structure addition of senior management Accessibility: Keyboard Navigation Test Bank for Foundations of Financial Management 10th Canadian Edition by BlockEasy Difficulty: Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Full file at https://TestbankDirect.eu/ Topic: 01-02 Evolution of Finance as a Discipline Multiple Choice Question Type: Memory 38 The increase in the internationalization of financial markets has led: to companies searching the global financial markets for high cost funds to a decrease in Canadian companies listing on the New York Stock Exchange to a decrease in debt obligations denominated in foreign currency on Canadian corporate balance sheets → to the tasks of the financial manager being reshaped Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-10 Functions of Financial Management Multiple Choice Question Type: Memory 39 The internationalization of the financial markets has: → allowed firms such as Bombardier to raise capital around the world raised the cost of capital forced companies to value everything in U.S dollars created ASPE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 40 Increased use of technology has increased corporate efficiency by: increasing the firm's reliance on debt creating larger asset values on the firm's balance sheet made it cheaper (in terms of interest costs) for firms to borrow money → creating electronic communication networks Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Multiple Choice Question Type: Concept 41 Maximization of shareholder wealth is a concept in which: increased earnings are of primary importance increased cash flows are of primary importance increased dividends are of primary importance → increased share price is of primary importance Multiple Choice Question Full file at https://TestbankDirect.eu/ Page of 18 Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Type: Concept 42 Capital structure is: the relative mix of capital and intangible assets held by the firm → the relative importance of debt and equity in the firm's financing the relative importance of long-term investment decisions the terms required to borrow money Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline Multiple Choice Question Type: Memory 43 Financial markets allocate capital based on: → the pricing mechanism the efforts of financial intermediaries intervention by the Bank of Canada the number of treasury bills outstanding Accessibility: Keyboard Navigation Test Bank for Foundations of Financial Management 10th Canadian Edition by BlockEasy Difficulty: Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Full file at https://TestbankDirect.eu/ Topic: 01-11 Forms of Organization Multiple Choice Question Type: Concept 44 Corporate governance is the: → relationship and exercise of oversight by the board of directors of the company relationship between the chief financial officer and institutional investors operation of the firm by the chief executive officer (CEO) and other senior executives on the management team strategically directing the company through the board of directors with a focus on social responsibility Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-08 Social Responsibility Multiple Choice Question Type: Memory 45 Agency theory examines the relationship between: shareholders of the firm and its investment dealers → shareholders of the firm and its managers the board of directors and large institutional investors shareholders of the firm and its transfer agent Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Memory 46 Agency theory would imply that conflicts are more likely to occur between management and shareholders when: the company is owned and operated by the same person management acts in the best interests of maximizing shareholder wealth → the chairman of the board is also the chief executive officer (CEO) the board of directors exerts strong and involved oversight of managers Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth Multiple Choice Question Type: Concept 47 The internationalization of the financial markets has: → lowered the cost of capital raised the cost of capital forced companies to value everything in U.S dollars had no effect on the cost of capital Full file at https://TestbankDirect.eu/ Page of 18 Multiple Choice Question Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk Type: Concept 48 In analysis of a firm's market share value, an investor should not consider: the risk inherent in the firm the time pattern of the firm's earnings and cash flow the quality and reliability of reported earnings → book value of assets Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-06 Market Share Price Multiple Choice Question Type: Memory 49 The increased percentage of ownership of public corporations by institutional investors has: had no effect on corporate management created higher returns for the stock market in general created less pressure on public companies to manage their firms more efficiently → increased the ethical standards of management Accessibility: Keyboard Navigation Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Full file at https://TestbankDirect.eu/ Topic: 01-04 Maximizing Shareholder Wealth Multiple Choice Question Type: Concept 50 As finance emerged as an analytical, decision oriented discipline, the initial emphasis was placed on capital acquisitions → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline True / False Question Type: Concept 51 Inflation is assumed to be a temporary problem that does not affect financial decisions True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-01 The Field of Finance True / False Question Type: Memory 52 Timing is not a particularly important consideration in financial decisions True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline True / False Question Type: Concept 53 Institutional investors have had increasing influence over corporations with their ability to vote large blocks of stock and replace poor performing boards of directors → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth True / False Question Type: Memory 54 Insider trading involves the use of information not available to the general public to make profits from trading in a company's shares → True False True / False Question Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management Full file at https://TestbankDirect.eu/ Page 10 of 18 interests Topic: 01-09 Ethical Behaviour Type: Memory 55 Agency theory assumes that corporate managers act to increase the wealth of corporate shareholders True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth True / False Question Type: Memory 56 Historically the field of finance as a discipline described capital preservation, liquidity, reorganization, and bankruptcy through the 1930s depression → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline True / False Question Type: Memory 57 The higher the profit of a firm, the higher the value the firm is assured of receiving in the market True → False Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Accessibility: Keyboard Navigation Difficulty: Medium Full file Learning at https://TestbankDirect.eu/ Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder True / False Question 58 Social responsibility and profit maximization are synonymous True → False wealth as measured by share price Topic: 01-06 Market Share Price Type: Concept Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-08 Social Responsibility True / False Question Type: Concept 59 There is unlimited liability in a general partnership → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Memory 60 In the mid1950s, finance began to change to a more analytical, decision oriented approach → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline True / False Question Type: Memory 61 There are some serious problems with the financial goal of maximizing the earnings of the firm → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-05 Measuring the Goal True / False Question Type: Concept 62 Maximizing the earnings of the firm is the goal of financial management True → False True / False Question Full file at https://TestbankDirect.eu/ Accessibility: Keyboard Navigation Difficulty: Easy Page 11 of 18 Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk Topic: 01-03 Goals of Financial Management Type: Concept 63 Because socially desirable goals can impede profitability in many instances, managers should not try to operate under the assumption of wealth maximization True → False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth True / False Question Type: Memory 64 The sole proprietorship represents single-person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Memory 65 Profits of sole proprietorships are taxed at corporate tax rates Test Bank for Foundations of Financial Management 10th Canadian Edition by Block True → False Full file at https://TestbankDirect.eu/ Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Memory 66 The primary market includes the sale of securities by way of initial public offerings → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Memory 67 The most common partnership arrangement carries limited liability to the partners True → False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Memory 68 A limited partnership limits the profits partners may receive True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Memory 69 In terms of size of revenues and profits, the corporation is by far the most important form of business organization in Canada → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Concept 70 Dividends paid to corporate shareholders have already been taxed once as corporate income Full file at https://TestbankDirect.eu/ Page 12 of 18 → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Concept 71 One advantage of the corporate form of organization is that income received by shareholders is not taxable since the corporation already paid taxes on the income distributed True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Concept 72 A corporation must have at least 35 shareholders True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and Test Bank for Foundations of Financial Management 10th Canadian Edition by Block investing of funds Topic: 01-11 Forms of Organization Full file at https://TestbankDirect.eu/ True / False Question Type: Memory 73 Profits of a manufacturing corporation are taxed at the same rate as dividends True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Concept 74 Recently, the emphasis of financial management has been on the relationships between risk and return → True False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-10 Functions of Financial Management True / False Question Type: Concept 75 The formation of a corporation is a way to circumvent personal liability → True False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization True / False Question Type: Concept 76 The secondary market characteristically has had stable prices over the past 20 years True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Memory 77 The first Nobel Prizes given to finance professors was for their contributions to capital structure theory and portfolio theories of risk and return → True False True / False Question Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder Full file at https://TestbankDirect.eu/ Page 13 of 18 wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Type: Memory 78 Financial markets exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-12 The Role of the Financial Markets True / False Question Type: Memory 79 Inflation has led to phantom profits and undervalued assets → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Concept 80 Money markets refer to those markets dealing with short-term securities having a life of one year or less → True False Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-12 The Role of the Financial Markets True / False Question Type: Memory 81 Capital markets refer to those markets dealing with short-term securities having a life of one year or less True → False Full file at https://TestbankDirect.eu/ Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-12 The Role of the Financial Markets True / False Question Type: Memory 82 New issues are sold in the secondary market True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Memory 83 Existing securities are traded in the secondary market → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Memory 84 The financial markets value assets based on the most productive current use → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk True / False Question Type: Concept 85 The 1990s demonstrated that the old valuation models were no longer effective True → False Full file at https://TestbankDirect.eu/ Page 14 of 18 True / False Question Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline Type: Concept 86 The largest financial intermediaries after the banks are insurance companies True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth True / False Question Type: Memory 87 The TSX Composite Index is representative of equity market value of the top listed Canadian companies → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-15 Risk True / False Question Type: Memory 88 The Internet is largely responsible for the internationalization of the financial markets True Test Bank for Foundations of Financial Management 10th Canadian Edition by Block → False Full file at https://TestbankDirect.eu/ Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-12 The Role of the Financial Markets True / False Question Type: Concept 89 Agency theory examines the relationship between companies and their customers True → False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth True / False Question Type: Memory 90 Honesty in business requires timely and full disclosure of pertinent firm developments → True False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-09 Ethical Behaviour True / False Question Type: Concept 91 Businesses will increasingly rely on B2B Internet applications to speed up cash flows → True False Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-02 Evolution of Finance as a Discipline True / False Question Type: Memory 92 Issues over corporate governance are often agency problems → True False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth True / False Question Type: Concept 93 Agency theory examines the relationship between the owners of the firm and the managers of the firm → True False Full file at https://TestbankDirect.eu/ Page 15 of 18 True / False Question Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-04 Maximizing Shareholder Wealth Type: Memory 94 Secondary markets are the markets that trade previously issued securities → True False Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields Topic: 01-14 Allocation of Capital True / False Question Type: Memory 95 Financial management builds upon the disciplines of economics and accounting Describe what a: economics provides the financial manager b: accounting provides the financial manager Explanation: Economics provides the financial manager with • A broad picture of the economy and the key measures that influence the corporation's decisions and performance (gross Test Bank for production, Foundations of Financial Managementinflation, 10th Canadian Edition domestic product, industrial disposable income, unemployment, interest rates, taxes).by Block • An understanding of the institutional structure of our mixed capitalist system (government regulation, Bank of Canada, Fullinvestment file at https://TestbankDirect.eu/ chartered banks, dealers, trusts, insurance companies, financial markets) Capital is accumulated and valued in competitive financial markets, affecting its cost and availability to the firm • A structure for decision making (risk analysis, pricing theory through supply and demand relationships, comparative return analysis) Accounting provides the financial manager with • Much of the language of finance (assets, liabilities, cash flow) • Financial data (income statements, balance sheets, statement of cash flows) The financial manager must know how to interpret and use this data in allocating the firm's financial resources to generate the best value on the basis of return and risk Finance links economic theory with the numbers of accounting, and all corporate managers—whether in the area of production, sales, research, marketing, management, or long run strategic planning-must know what it means to assess the financial performance of the firm Difficulty: Hard Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics Topic: 01-01 The Field of Finance Type: Memory Short Answer Question 96 Selecting profit maximization as the primary goal of the firm may not increase its value, because a profit-only focus has several drawbacks List and describe these drawbacks Explanation: Risk may increase as profit changes More debts or investment in projects with cyclical earnings to increase profits also increase risk Shareholders may consider the increase in risk insufficient for the increased earnings Profit fails to take into account the timing of benefits We might be indifferent between the following alternatives if our emphasis were solely on maximizing earnings, as the total is the same However, alternative B is clearly superior, because larger benefits occur earlier; we could reinvest the difference in earnings for alternative B for an extra period Earnings per Share Accurately measuring profit is almost impossible Economics and accounting define profit (earnings) differently Furthermore, earnings may not correspond to current values due to the methods used to capture accounting accruals and the amortization of capital expenditures As well, financial statements are subject to manipulation by managers, so reported earnings may be misleading Short Answer Question Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Full file at https://TestbankDirect.eu/ Page 16 of 18 Topic: 01-05 Measuring the Goal Type: Memory 97 What factors will investors consider in the analysis of a firm market share value? Explanation: • The risk inherent in the firm (nature of its operations and how the firm is financed) • The time pattern of the firm's earnings and cash flows • The quality and reliability of reported earnings (as a guidepost to future earning power) • Economic and political factors Difficulty: Medium Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price Topic: 01-06 Market Share Price Short Answer Question Type: Memory 98 According to agency theory, other than maximizing shareholder wealth what other self-interests financial managers have? Explanation: Financial managers are interested in: • Maintaining their jobs (may discourage value-enhancing takeovers) Test Bank for Foundations of Financial Management 10th Canadian Edition by Block • Protecting "private spheres of influence" • Maximizing their own compensation package Full file https://TestbankDirect.eu/ • Arbitrating among the at firm's different stakeholders (shareholders, creditors, employees, unions, environmentalists, consumer groups, Canada Revenue Agency, government regulatory bodies, customers) Pursuit of these interests may emphasize short-term results over long-term wealth building Management may also perceive the risk of investment decisions differently from shareholders, leading to different points of view as to the best decision regarding the investment of the firm's resources Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-07 Management and Shareholder Wealth Short Answer Question Type: Memory 99 Besides maximizing shareholder wealth, what should corporations consider to be goals? List and briefly explain Explanation: Corporations, which receive their operational charters from society, should consider socially desirable actions that include: • Community works (charitable giving, employment opportunities for marginalized groups) • Customer respect (safe products, fair pricing, appropriate advertising and communication) • Strong employee relations (fair benefits and compensation, equitable hiring, education, health and safety) • Environmental health (pollution controls, appropriate use and renewal of resources) • Human rights promotion (respecting the dignity of individuals globally) Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-09 Ethical Behaviour Short Answer Question Type: Memory 100.What are the components of good corporate governance? Explanation: Good corporate governance results from: • Board composition (strong leadership, competent education, balanced competencies) • Director and officers ownership positions in the firm (other than by stock options) • A published code of ethics • Independent audits and a financially literate audit committee Short Answer Question Difficulty: Medium Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Full file at https://TestbankDirect.eu/ Page 17 of 18 Topic: 01-09 Ethical Behaviour Type: Memory 101.List the components of good corporate governance and identify additional measures that could be added to strengthen corporate governance Explanation: Good corporate governance results from: • Board composition (strong leadership, competent education, balanced competencies) • Director and officers ownership positions in the firm (other than by stock options) • A published code of ethics • Independent audits and a financially literate audit committee There have been increased demands for additional corporate governance practices by firms, despite the increased costs of compliance and sometimes delays in timely reporting of financial results These measures include: • Separating the roles of CEO and chair of the board • Independent board of directors members • Improved accounting standards (stock options, internal audit controls, "off-balance sheet items") • More stringent reporting and disclosure requirements • Closer monitoring by regulatory bodies (securities commissions) • Questioning the use of "dual class" shares Difficulty: Hard Test BankLearning for Foundations of Financial Management 10th Block Objective: 01-04 Debate alternative goals of the firmCanadian on the basisEdition of socialby or management interests Topic: 01-09 Ethical Behaviour Full file at https://TestbankDirect.eu/ Short Answer Question Type: Memory 102.List the occasional functions of the finance manager connected to the efficient raising and investing of funds Explanation: Intermediate financing, bond issues, leasing, stock issues, capital budgeting, dividend decisions, forecasting Difficulty: Easy Learning Objective: 01-04 Debate alternative goals of the firm on the basis of social or management interests Topic: 01-10 Functions of Financial Management Short Answer Question Type: Memory 103.What are the characteristics of a sole proprietorship? What are the drawbacks? Explanation: A sole proprietorship is characterized by: • Single-person ownership • Simplicity of decision making • Low organizational and operating costs • Unlimited liability to the owner (can lose personal assets in settlement of firm's debts) • Profits or losses taxed in hands of individual owner Most small businesses with one to ten employees are sole proprietorships The unlimited liability is a serious drawback and few lenders are willing to advance funds to a small business without a personal liability commitment from the owner Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Short Answer Question Type: Concept 104.What are the characteristics of a partnership? What are the advantages compared to a sole proprietorship? Explanation: A partnership is characterized by • Multiple ownership • Ability to raise more capital and share ownership responsibilities • Unlimited liability for the owners (one wealthy partner may have to bear a disproportionate share of losses in a general partnership) • Taxation of profits or losses are allocated in percentages to partners Full file at https://TestbankDirect.eu/ Page 18 of 18 To circumvent the unlimited liability feature, a special form of partnership, called a limited partnership, can be utilized Under this arrangement one or more partners are designated general partners and have unlimited liability for the debts of the firm; other partners are designated limited partners and are liable only for their initial contribution The limited partners are normally prohibited from being active in the management of the firm Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Short Answer Question Type: Concept 105.What are the characteristics of a corporation? Explanation: A corporation is characterized by: • A legal entity unto itself (may sue or be sued, engage in contracts, acquire property) • Ownership by shareholders (each with limited liability, although bankers may require small business owners to give their personal guarantee) • Divisibility of the ownership (many shareholders) • Continuous life span (not dependent on life of one shareholder) • Taxation on its own income (individual shareholders pay tax on dividends or capital gain tax when shares are sold) In terms of revenue and profits produced, the corporation is by far the most important form of economic unit Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Difficulty: Medium Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Short Answer Question Type: Memory 106.What choices does the board of directors have to distribute earnings of a corporation? Full file at https://TestbankDirect.eu/ Explanation: Earnings generated by the corporation are owned equally by each shareholder, and the board of directors has two choices for these earnings Earnings can be: • Paid out as dividends (shareholders pay tax on dividends: a dividend tax credit reduces the effect of double taxation) • Reinvested in the firm (recorded as retained earnings) Difficulty: Easy Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds Topic: 01-11 Forms of Organization Short Answer Question Type: Memory Full file at https://TestbankDirect.eu/ ... responsible for the internationalization of the financial markets True Test Bank for Foundations of Financial Management 10th Canadian Edition by Block → False Full file at https://TestbankDirect.eu/... Identify financial manager functions connected to the efficient raising and Test Bank for Foundations of Financial Management 10th Canadian Edition by Block investing of funds Topic: 01-11 Forms of. .. corporation is by far the most important form of economic unit Test Bank for Foundations of Financial Management 10th Canadian Edition by Block Difficulty: Medium Learning Objective: 01-05 Identify financial